European Union (EU) members have agreed to revise the banking capital rules following 18 months of deliberation.
The accord, between 28 EU governments, is expected to strengthen the region’s financial stability.
Following the agreement, all the European banks need to comply with the new requirements to have stable funding sources, reported Reuters.
The agreement authorises the Single Resolution Board, the agency for struggling banks, to set a capital buffer level that the banking institutions need to retain to mitigate risks of failure.
This Minimum Requirement for own funds and Eligible Liabilities (MREL) was set at 8% of large banks’ total liabilities and funds.
However, the Single Resolution Board can make adjustments to the ratio, increasing it for the struggling banks while decreasing it for the better performers of the sector.
The agreement was fully supported by Germany and France, while other member countries accepted with some reservations.
The members also agreed to ensure a favourable capital treatment for the large financial institutions that are part of the EU’s banking union including France’s BNP Paribas and Italy’s Unicredit.
According to the new set of regulations, all large foreign banks will have to establish intermediate parent undertakings (IPUs) to include all their activities in Europe under a single holding.
It is expected to safeguard EU’s financial stability against all risks borne by major banks.